John Murphy’s MEDINA REAL ESTATE REPORT

Based upon what sold in the MLS, 2007 was not a good year to be selling lots and land in Medina.  Only one lot sold in Medina in 2007.  That was 20 acres that sold for $750,000.

In 2006, 7 lots had sold for a total of $5,752,000.  If you back out the small single family lot that sold at 2933 Ardmore for $164,000 for a .34 acre lot, that leaves a total of 6 parcels that sold for $5,588,000 representing 70.2 acres.  That amounted to $79,601 per acre.

The fact of the matter is in looking at this data, if you wanted a decent sized lot for your country home in Medina, you were looking at approximately $90,000 - $100,000 per acre in 2006 and in general it would cost you close to $1,000,000 to buy such an acreage lot.

Given the slowdown that occured in 2007, it’s difficult to know what the true cost of an acreage lot is today, but there was one sale as mentioned above for 20 acres and $750,000.  I believe the more important thing to look at in this sale is not the $37,500 per acre, but rather the amount of $750,000.  The reason I say that is that in looking at past history, larger lots in Medina have gone for between $900,000 - $1,200,000 for anywhere between 10 - 20 acre lots.  The key is the overall price of the lot more so than the price per acre.  Some have historically paid close to $100,000 per acre for the smaller parcels and $50,000 to $60,000 per acre for the larger parcels (i.e. 20+ acres).

Here are the list of active lots and land for sale in Medina as of January 18, 2008.

The City of Plymouth has $9 million to spend on land for parks and open space initiative.  It was meant to be spent in Northwest Plymouth as that part of the city begins to developed.  However, there are now others looking to spend the money elsewhere in the city.

The most interesting thing is there is a land owner who is willing to sell his land for $300,000 per acre.  Only government would spend that kind of money on land these days.  The developers and builders aren’t spending that to develop.  I hope the city doesn’t go down the road of spending that kind of money for parks or open space.

Here’s the story from The Weekly News.

Last fall, the City of Medina embarked on an ambitious plan to hear from as many Medina residents as possible through a variety of venues including public forums at the City Council meetings, neighborhood meetings, and specific public meetings to address the various pieces of the 2030 comprehensive plan update for the city of Medina.

I had the opportunity to attend a few of these meetings.  It was clear to me that the city is very divided on the issue of development.  On the one side are the land owners.  Many of  them have held land for years - sometimes for generations.  They see that land is selling for $200,000 to $250,000 per acre and they would like to cash in.  Who can blame them?

There are those on the opposing side who do not want to see much for development.  Many of the people who hold this opinion are newer residents to Medina.  They purchased a beautiful, expensive home and bought in Medina for it’s rural character.

Given last November’s election, it’s hard to imagine that we will see runaway development in the City of Medina.  However, if we want to have more business services in the city, that’s going to require more roof tops.

During the past few months, the City of Medina has been taking requests from citizens regarding the City of Medina’s plan to update the 2030 Comprehensive Plan.  There are four pages of requests essentially for development.  Many of the requests are asking that the City of Medina include their parcel in the MUSA for 2030 so that they will have sewer and water.  This would increase their land value overnight by a very significant amount.

It will be interesting to watch how this plan comes together over the next several months as the new council begins its work and puts its mark on the City of Medina for the next 20 years.

If you’ve been following the earnings reports from the national home builders, you’ve been reading about how all of them are now writing off much of the land that had options for and they are reducing the book value of what ever land they continue to hold.  If you read the news reports, listen to the mainstream media, and read what the “housing crash” bloggers have to say, the world is coming to an end for the U.S. housing market.

But what they don’t realize is what’s really happening here.  Let’s say a builder has purchased an option to buy some land.  The deal has a purchase price of $250,000 per acre for a total purchase price of $10 million and the option to hold that land was $500,000.  So now, the builder walks away from his half million dollars only to try to go back to the land owner and renegotiate the land for $6 million or 40% less than what the initial deal was.  Despite the $500,000 the builder or developer walked away from, he still stands to improve his position by $2-3 million by going back to the table to renegotiate.

There is no bell that gets rung when the market hits the bottom, but this sure has the makings when every major builder is throwing in the towel on their land holdings and writing off everything they can.

It’s called clearing the decks…and making way for significant performance improvement in the future.

Lennar (LEN) started out the year with a thud stating that the housing market has not yet found a bottom and that they are slashing inventories, and particularly their land holdings.

Word on the street is they have let go of their two land buyers in the Twin Cities metro.  Apparently they aren’t going to be in need of land for some time to come.  Of course, if the market continues to firm, they can just hire these people back again.

Land is a very volatile part of the real estate transaction.  Because it provides the most leverage, it has the greatest chance to rise in good times and collapse in bad times.

It’s likely you’ll continue to find some good deals at Lennar’s developments like the one in Maple Grove - Bonaire as well as the new one in Plymouth called Taryn Hills.

The Met Council has released it’s latest report on growth projections for the Twin Cities metropolitan area.   They are now saying we are still on track to grow the 7-county metro by one million people by the year 2030.  While that sounds like a lot of growth (and it is) it was only a year or so ago they were saying we would be adding one million people by the year 2020.

Finance and Commerce published an article on September 7, 2006 entitled, “Big builders Backpedal as market softens.”  In the article, Jerry Lagro, Land Acquisition Manager for Lennar stated that they have renogiated 92% of their land deals in the past year!  That’s incredible and unprecidented.
It’s amazing how fast the land market changed.  It was only a year ago that WCCO and KARE 11 were reporting land selling for $250,000 to $300,000 in Maple Grove.  This of course was right at the top of the market for land.  Since then, builders across the nation have been walking away from millions of dollars in options money that they had used to secure property for future development.

The fact of the matter is, land prices are more volatile than housing prices.  Because land is the ultimate in leverage, when business is going well for the builders, they can afford to pay a premium for the land.  When everyone wanted $800,000 houses, builders could afford to pay $200,000+ per acre.  Now that builders want to build homes in the $600,000 range, land values will have to come down signficantly.

It will be interesting to see how the land owners respond.  If someone could get  $2 million for their land one year ago and they take $1.5 million for it,  no doubt their friends and neighbors are going  to say  they  gave it away.

Many people don’t realize this, but FEMA (Federal Emergency Management Administration) updated their flood plain maps a couple of years ago. Some homes and properties that used to not be considered in the flood plain now may indeed be in a flood plain. We’ve seen this change in the zoning impact a few transacations in our office recently. It’s extremely difficult to get home owner’s insurance if you live in a flood plain. If you’re buying or selling property, your agent should make sure to check the FEMA web site to determine whether or not the particular property is in a flood plain. To see if your own property is in a flood plan, please see here.

During the past few months, the business press has been reporting that many of the nations largest home builders may have to write down the value of their land holdings given the softening in the housing market.   Many builders have walked away from millions of dollars in option money they had given to land owners in order to control that land.

USA Today is reporting that builders are indeed scaling back the land they have.  Land contracts signed in the past couple of years will likely be either renegotiated or the builders will walk away leaving their option money on the table.

For more on the story see here.

Based upon my conversations with some local developers here in Northwest Hennepin County, we’re seeing the same thing as is mentioned in the article.  Land owners continue to think their land is worth a premium.  However, developers and builders are very cautious about bringing to market more $800,000+ luxury homes.  It’s clearly going to take months and months to digest what’s currently on the market.

Every Wednesday morning, Edina Realty Wayzata holds an Exceptional Properties meeting at a home in Plymouth, Wayzata, Minnetonka, Wayzata, Orono etc.  Last week we had an opportunity to preview and discuss strategy for marketing a home in Nantarre listed at $990,000.

This prompted me to look at the housing supply in the upper bracket in Plymouth.  It turns out as of tonight, there are 35 homes for sale over $749,000 — there are only 2 homes pending and one of those is pending at $6.4 million which essentially was for the land at $320,000 per acre.  (That by the way seems to be an incredible price paid.  The buyer is  not known at this time and that property is scheduled to close in December.  Given the softness in land prices, it would be amazing to me that that deal closes).

35 homes for sale and 2 homes pending means there is a 17 month supply of upper bracket homes in Plymouth.

Given that long term rates for a 30 year mortgage are around 6.375% this is an incredible buying opportunity for any move up buyers ready to negotiate with these sellers.